UK to nudge government spending towards investment

Britain's Prime Minister David Cameron leaves Number 10 Downing Street in London March 18, 2013.

Reuters/Luke MacGregor

LONDON Britain will nudge government spending away from day-to-day expenditure and towards longer-term investment over the coming two years in a bid to spur faster economic growth, the government said on Tuesday.

Speaking a day before the government presents its annual budget, Prime Minister David Cameron's spokesman said most government departments would have to cut spending by a further 1 percent in each of the next two financial years.

"That will save us cumulatively almost 2.5 billion pounds ($3.8 billion)," the spokesman said. "It is also allowing the recycling in the short term of money into capital spending, which is an important part of the government's agenda."

Chancellor George Osborne, known as the chancellor of the exchequer, is expected to forecast slower growth and further delays in achieving the government's deficit reduction goals on Wednesday, faced with what Cameron's spokesman called "an unprecedented peacetime economic crisis".

Britain has recently lost its prized top-notch triple-A sovereign debt rating, and many economists, business groups and others have called on the government to reverse a fall in public investment in order to revive growth.

Osborne opposes more government borrowing to fund investment, but is willing to cut other areas of public spending to pay for long-term projects. He is expected to detail which projects will benefit from these latest cuts in his budget on Wednesday.

In December, he announced cuts to most departments' budgets of 1 percent in the 2013/14 tax year and 2 percent for 2014/15, raising 3.4 billion pounds to spend on infrastructure and measures to support businesses.

Public sector trade unions are already due to stage a one-day strike on Wednesday to protest against existing cuts, and were swift to condemn Tuesday's news of more.

"With interest rates negative in real terms, the chancellor has the perfect opportunity to invest in Britain's future, rather than raiding departmental budgets to cover his failed economic strategy," said Frances O'Grady, general secretary of the Trades Union Congress.

The latest round of cuts will not affect spending on health, schools, international aid or tax collection, while local government and police will be exempt from the first year's cuts. They only cover departmental spending, and not welfare payments, which are categorised separately in Britain's public finances.

Savings made in 2014/15 will also count towards a goal of reducing departmental spending by 10 billion pounds in 2015/16.